Background
Chantella Blackburn suffered a work-related injury after falling from a step ladder onto a third-party vendor’s cart while employed by K-VA-T Food Stores. She received workers’ compensation benefits and separately settled a negligence claim against the vendor for $295,000. Because the settlement did not allocate damages, the administrative law judge determined that one-third represented pain and suffering, which was not subject to workers’ compensation subrogation, and that the remaining two-thirds duplicated compensable damages.
After accounting for attorney fees and litigation expenses, the ALJ permitted K-VA-T to recoup $25,246.43 in benefits already paid and awarded a credit against future benefits. The Workers’ Compensation Board agreed that immediate recoupment and a future credit were available but remanded to correct the ALJ’s inconsistent allocation of legal expenses. The Court of Appeals instead held that K-VA-T could recover only after its paid benefits exceeded its pro rata share of Blackburn’s legal fees and expenses. K-VA-T appealed, and Blackburn cross-appealed.
The Court’s Holding
The Kentucky Supreme Court first held that the ALJ had jurisdiction to award subrogation against Blackburn’s civil-settlement proceeds. Because an employer’s subrogation right arises under KRS 342.700, resolving the amount recoverable from a third-party settlement falls within the ALJ’s authority.
On the merits, the Court held that KRS 342.700(1) requires the ALJ to identify the settlement proceeds duplicating workers’ compensation damages and then subtract the employer’s pro rata share of the attorney fees and litigation expenses incurred to obtain those proceeds. The employer may immediately recoup previously paid duplicative benefits from the remaining amount and, when applicable, receive a credit against benefits payable in the future. The statute does not impose a threshold requiring the employer first to pay benefits exceeding its share of legal costs.
The Court affirmed in part, reversed the Court of Appeals insofar as it adopted that fee-first threshold, and remanded by reinstating the Board’s decision directing the ALJ to correct the mathematical error. Under the proper calculation, $116,801.64 was available for subrogation after deducting K-VA-T’s pro rata shares of attorney fees and expenses.
Key Takeaways
- An ALJ has jurisdiction under KRS 342.700 to determine subrogation rights against proceeds from an employee’s third-party civil settlement.
- The employer’s pro rata share of legal fees and expenses is deducted from the duplicative settlement proceeds, not treated as a threshold that benefits paid must first exceed.
- An employer may immediately recover duplicative benefits already paid and may receive a credit against future benefits, subject to the properly calculated subrogation amount.
Why It Matters
The decision clarifies how Kentucky’s 2018 amendment to KRS 342.700(1) changes the treatment of attorney fees and expenses in workers’ compensation subrogation. The amendment requires proportional cost-sharing without delaying reimbursement until the employer’s benefit payments surpass its allocated legal costs.
The ruling also confirms that Kentucky workers may pursue both compensation and third-party remedies but may not retain overlapping recoveries. Employers and insurers must bear their proportional share of the costs that produced the duplicative recovery before obtaining reimbursement or future-benefit credits.